Just a few weeks ago it would have appeared the world was on the brink of another major financial crash; tensions in Europe and concerns about Greece leaving the Euro were increasing, China's stock market was crashing, and it appeared Puerto Rico would not be able to pay its debts, just to name the big concerns bringing fear to the world financial markets.
Well, fast forward to today and for the most part those concerns have all but dissipated; it would seem Greece and the rest of Europe have come to some sort of agreement at least for the time being, China's government stepped in and put policies in place to attempt to stop its market from crashing, and Puerto Rico has paid most of its debt's and even though it defaulted on one, the market hasn't seemed to care. The major indexes are again nearing all-time highs. The S&P 500 is above 2,120 and the Dow Jones is at about 18,100.
Again this was another great example of why when the world seems to be falling apart and others are panicking, the best reaction is to stay calm and continue trudging on. Anytime we go through this sort of situation, I always go back to my favorite Warren Buffett "Be fearful when others are greedy and greedy when others are fearful."
Since this advice is much easier said than done, let me give you a hand next time the markets appear they are on the verge of a crash by naming my three favorite ETF's to buy when others are panicking.
SPDR S&P 500 ETF (SPY)
When you buy the SPDR S&P 500 ETF you are buying the S&P 500 or as some would say, 'the market' itself. As investors fear the future and uncertainty takes over, the market as a whole usually begins to fall. And when the market as a whole is falling, deciding which individual stocks are going to rebound better than others is a complete gamble.
Irrational thinking is causing the tide to move out and all boats to go lower, so fighting the wave of irrational behavior with more irrational behavior is not likely going to work well. So, buy everything.
This most recent scare pushed the SPY down to $205.47 on June 29th and then even lower to $204.53 and July 8th. Had you bought during either one of those slides you would have made an easy 3.5% in just a few days since SPY is now trading at $212.
In addition, SPY pays a nice 1.96% dividend yield, what I like to think of as the cherry on top of my cake.
SDY S&P Dividend ETF (SDY)
The SDY is for investors who want safety while still having exposure to equities. The SDY tracks the S&P 500's dividend aristocrats -- companies whom have not only paid a dividend for at least 25 consecutive years, but also increased those dividend amounts for each of those 25 years.
These are companies that have proven they can ride out the tough economic times. Companies that have a history of being shareholder friendly. They are the kind of companies that you want to own during a market downturn because they will hold up better due to their reasonable price to earnings ratio's, their reliable revenue streams, but mainly because for the most part their products are everyday items the general population is going to buy regardless of the economy. Think of the Coca-Cola's, Procter & Gamble's, Johnson & Johnson's of the world. These companies sell small multi-purchase products that most would consider essential to everyday living.
Not only will the price of these equities likely hold up better than other stocks during a downturn in the market, but by owning SDY you will also still receive a fairly nice dividend payment of 2.37% while you wait for the market to rebound.
Vanguard Total World Stock ETF (VT)
Similar to the thinking that when all stocks are crashing, buy the market, this last option takes it one step further – when the world is coming to an end, buy the world. The Vanguard Total World ETF or the VT will help you buy the world. It holds 3,750 different stocks from 45 different countries. The US accounts for 41.9% of the fund while emerging markets account for 14%. The top 10 holdings represent 7.7% of the ETF's value.
This option is more risky than buying SDY and even SPY, but it also gives you much more exposure and upside potential. With 14% of the fund holding emerging market stocks, you have much more opportunity to outperform SPY and SDY if those markets display strong growth. But, the risk is also much higher with VT meaning only those investors who can handle the downside swings should be buying VT.
The three above options are just that, options for investors to think about now, before another world ending event is on the horizon. That way when the next event happens, and other investors are panicking, you will at least have a buy list ready to go. Most importantly, when it seems the markets are crashing, just remember, since the first stocks and bonds were traded in New York back in the 1800's, over time stocks as a whole have always gone higher.
INO.com Contributor - ETFs
Follow me on Twitter @mthalman5513
Disclosure: Matt Thalman did not hold positions in any company mentioned above. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.